Zomato shares crack 5% intraday as CCI orders probe against food delivery aggregators; brokerage gives Hold rating

Shares of food aggregator company Zomato plummeted nearly 5 per cent to touch a day’s low level of Rs 82.15 per share on the BSE on the intraday basis on Tuesday.  

The crack in the stock came mainly after the reports of the Competition Commission on India (CCI) ordering a detailed probe on Monday against food delivery platforms, Zomato and Swiggy, for alleged unfair business practices with respect to their dealings with restaurant partners. 

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At around 11:05 AM, the shares of Zomato were trading around 2 per cent down to Rs 84.65 per share, as against a 0.37 per cent fall in the S&P BSE Sensex. The stock had hit a record low of Rs 75.55 on March 16, 2022 and had registered a record high of Rs 169.10 on November 16, 2021. 

The CCI order comes after a complaint filed by the National Restaurant Association of India (NRAI), and it also asked the regulator to probe both Zomato and Swiggy for breaching platform neutrality by providing priority to exclusive contractors, according to a PTI report. 

The regulator said that "prima facie there exists a conflict-of-interest situation, warranting a detailed scrutiny into its impact on the overall competition between the RPs vis-à-vis the private brands/entities which the platforms may be incentivized to favour”. 

India’s leading food-tech company – Zomato has around 50 per cent market share. The shares of the company have been witnessing correction for the last three months and have underperformed the market by falling nearly 40 per cent, as compared to a 0.4 per cent rise on the S&P BSE Sensex. 

The global investment bank HSBC urges investors to Hold Zomato shares for a target price of Rs 92 per share, which translates into an upside of 13 per cent from Tuesday’s low. It said that the success of the grocery business is an upside risk to earnings and valuation.